Keep your finances on track with a spending plan

If you made a New Year's resolutions to improve your finances, consider developing a spending plan (a.k.a., budget) for spending and saving your income. Two keys to developing a successful spending plan are realistic figures for each expense category (e.g., food) and an easily manageable record-keeping system. Looking for an easy way to manage your finances?
Below is a description of seven commonly used spending plan record-keeping methods:

1. Computer Programs -- Many people use personal finance software (e.g., Quicken) or spreadsheet programs (e.g., Excel) to keep income and expense records.
Some programs print a summary of differences between planned and actual spending. They also provide a cumulative annual summary of spending so you can see exactly where your money goes for an entire year and the percentage of income spent in each category (e.g., mortgage, 35 percent).
Of course, as with any computer program, the output is only as good as the numbers that are used. Otherwise, it's "garbage in, garbage out." Initially, it takes time to set up records that later will save time and effort.

2. Web Sites -- Rutgers Cooperative Extension has downloadable spending plan worksheets (in a "paper and pencil" print format and in Excel) at http://njaes.rutgers.edu/money/.
The direct link for the printed worksheet is http://njaes.rutgers.edu/money/pdfs/fs421worksheet.pdf and for the Excel spreadsheet: http://njaes.rutgers.edu/money/templates/Spending-Plan-Template.xls.
Other helpful websites are Budgetpulse https://www.budgetpulse.com/ and Mvelopes http://www.mvelopes.com/, an online version of the envelope budgeting system described below.

3. Envelope System -- Envelopes are also used by many people as a spending plan tool. Every payday, money is divided among envelopes for various expense categories. When an envelope is empty, spending in that category ends unless "transfers" are made (e.g., $50 from food envelope to utilities envelope).
An advantage of the envelope system is easy access to money. A disadvantage is the possibility of loss or theft, due to keeping money at home, and lack of interest on "savings."

4. Account System -- Instead of placing money physically in envelopes, income is deposited into a bank or credit union account and divided "on paper" using a written ledger or computer spreadsheet. Headings are listed for different expense categories.
Each time money is added or spent in a category, the balance changes. Surpluses or deficits in an expense category (e.g., food) can carry over from month to month. The amount in the overall bank account, however, should always remain "in the black."

5. Manual Spreadsheet System -- Two columns are listed on a sheet of paper: "target amount" and "actual amount."
"Target amount" is the anticipated figure for income and expenses while "actual amount" lists what really happened (i.e., a number that is over or under the planned amount). This method provides a simple way to compare planned and actual figures so that future adjustments can be made, if needed.

​6. "Running Balance" System -- This method tracks an account where funds are held for bill paying. Using a calendar with paydays marked, and a list of monthly and occasional (e.g., quarterly property taxes and insurance premiums) expenses, a projection is made of income and expenses for a 3- to 6-month period.
"Extra" paychecks (e.g., a month with five weekly paydays) and occasional expenses (e.g., gifts) are inserted into the budget as they occur. The ending balance is carried forward in subsequent projections.

7. Reserve Accounts -- Many people establish special accounts as a "parking place" for earmarked money. An example is reserves held for occasional expenses such as holiday gifts and water and sewer bills. The annual cost for each expense is divided by 12 and saved monthly.
Other common reserve accounts are money set aside monthly for home maintenance expenses and emergencies (e.g., unemployment).

​There is no one "right" way to prepare a household budget. Rather, develop a budgeting system that works for you. Rutgers Cooperative Extension has online resources to help you with your personal finances.
Visit our money and investing web site at http://njaes.rutgers.edu/money/. Once again, Happy New Year. Best wishes for good health and increased financial security in 2017.


Barbara O'Neill, an Andover Township resident, is Extension Specialist in Financial Resource Management for Rutgers Cooperative Extension. She can be reached at 848-932-9126 or oneill@aesop.rutgers.edu. She also tweets daily financial education messages on Twitter at http://twitter.com/moneytalk1.